SEPTEMBER 17, 1998

Mr. Chairman, I want to thank the committee for the opportunity to
testify on the export of commercial communications satellites to
China. I believe this Administration’s policy on these exports both
protects our national security and facilitates our economic
well-being. In allowing China to launch U.S. satellites and
transferring licensing jurisdiction for commercial communications
satellites to Commerce, this Administration has continued and enhanced
the policy of the Reagan and Bush Administrations and has been
consistent with Congress’ expressed intent.

Our current policy continues the decision by previous administrations
to allow China to launch U.S.-built satellites subject to bilateral
agreements on price, number of launches and technology safeguards.
President Reagan began this policy in light of the growing demand for
satellite launches, a demand which could not be met by U.S. launch
service providers. His decision was a wise one, and he deserves credit
for ensuring that the U.S. would continue its lead of the commercial
communications satellite industry. Our view, like that of Presidents
Reagan and Bush, is that under the appropriate safeguards these
launches need not pose a risk to national security. In a moment I will
describe these safeguards as they apply to Commerce licensed
commercial communications satellites.

Commerce licensing of communications satellites grew out of a 1990
decision by President Bush to veto a revised Export Administration Act
which would, among other things, have moved all communications
satellites to Commerce jurisdiction. President Bush’s veto was
unrelated to the satellite issue, and in his veto message he directed
State to review the Munitions List to determine if items, including
communications satellites, which are controlled multilaterally as
dual-use items could be moved to Commerce jurisdiction. He did this in
light of the strong interest expressed by members of both parties in
the jurisdictional issue and as the U.S. was the only country in the
world to control communications satellites as munitions items. I note
that in 1990 and 1992 both houses of Congress passed legislation that
would have transferred jurisdiction over commercial communications
satellites to Commerce, and in 1994, committees in the House
introduced and in the Senate reported bills with this provision. These
actions are in addition to the frequent letters the Administration
received from a number of Members of Congress urging either the
jurisdiction transfer or the export of satellites to China.

As a result of this directive, the State Department transferred an
initial tranche of roughly half of all commercial communications
satellites to Commerce licensing jurisdiction at the end of the Bush
Administration. President Clinton committed in 1993 to continue the
list rationalization exercise begun by President Bush.

The 1992 transfer established nine technical parameters relating to
communications satellites’ components and capabilities. Satellites
with capabilities above the parameters were controlled by State. Those
with lesser capabilities were controlled by Commerce. A 1995 review,
undertaken by a working level group of technical experts led by the
State Department, attempted to adjust these parameters to see if
additional satellites could be moved to Commerce jurisdiction.
However, this technical working group was unable to resolve several
issues. Rapid technological change in the current generation of
commercial communications satellites meant that the nine parameters
could no longer consistently separate “military” from “commercial”
communications satellites. These changes made the parameters outdated
and illustrate the migration of military technology into the
commercial communications satellite sector as the demand for satellite
telecommunications services grows.

A cursory review of the parameters illustrates the problem. For
example, a satellite flown at high earth orbit has a larger
“footprint” on the ground than one flown at a low earth orbit. Even
though the two satellites could be exactly the same, the one with the
larger footprint would be treated as a munition if it flew at a higher
orbit. As satellites become lighter, the same propulsion system
provides greater acceleration. This means that new satellites, which
weigh less than old models, would be controlled as munitions only
because of their lighter weight.

Another parameter, cross-link capability, allows satellites to
exchange data without going through a ground station. In 1990, only
military satellites needed to “talk,” but the development of satellite
mobile phone networks means that civil satellites also needed to be
able to ensure global coverage and to avoid the expense of numerous
ground stations. Satellite antenna size is also a parameter. Satellite
antennas allow the transmission and reception of signals from the
ground. The larger the antenna, the better it can receive signals from
small transmitters like cell phones. Successful implementation of
global mobile telephone systems required that civil communications
satellites use these large antennas. If we still used parameters like
these to determine licensing jurisdiction, Iridium, Teledesic and
other satellite systems would now be licensed as arms exports.

With respect to the transfer of jurisdiction, Secretary of State
Christopher, in a June 8 statement in the Los Angeles Times, makes
clear that his 1995 decision was to task State and its industry
advisory group to continue the process begun by President Bush in 1990
to determine what additional communications satellites could be moved
to Commerce control. It was the Secretary’s instruction that led to
the eventual transfer of all satellites to Commerce, a decision which
all agencies involved — State, Defense, Commerce — supported.

As Secretary Christopher noted, this unanimous recommendation was due
in part to President Clinton’s December 1995 Executive Order 12981,
which revised the Commerce licensing process. This executive order
provided the participating agencies — State, Defense, Energy, and
ACDA — with the right to review and make recommendations on any
Commerce license application they wished, and it established time
lines and rules for interagency review and procedures for dispute
resolution and allows any agency the chance to object to proposed
exports through a hierarchy of committees from the working level all
the way to the President. Moreover, as part of the transfer of
jurisdiction, President Clinton amended Executive Order 12981 to
specifically give State, Defense, Energy, and ACDA greater ability to
object to a proposed export of commercial communications satellites.

In reality, no licenses have ever been sent to either Cabinet
Secretaries or the President in this Administration, but disagreements
go as high as the assistant secretary level in perhaps five percent of
our cases. Every license approved by Commerce for commercial
communications satellites since the 1996 transfer has had the
unanimous assent of State, Defense, and ACDA, has been subject to the
same level of stringent technology safeguards as satellites licensed
at State, and has made clear to exporters that no rocket technology
could be transferred.

The President’s 1996 decision applied only to commercial
communications satellites and the minimum equipment and technology
needed for launch. Space launch vehicles and all detailed design or
manufacturing data for space launch vehicles or communications
satellites were not transferred to Commerce by this decision, nor was
there a transfer of satellite components, if they were being exported
separately rather than as part of a single satellite launch package.

The President’s decision to transfer jurisdiction required that
Commerce impose enhanced controls on satellites. These new controls
excluded commercial communications satellites from certain provisions
of the Commerce regulations, such as foreign availability, which can
be used to release items from licensing. In addition, the enhanced
controls created a new and higher standard for reviewing
communications satellite licenses which requires a review of every
application to determine if the export is consistent with U.S.
national security and foreign policy interests. Language from the Arms
Export Control Act was used so as to provide the same level of control
under Commerce regulations as was found under State regulations.

Commerce licenses for communications satellites contain numerous
conditions and provisos developed in conjunction with the Departments
of Defense and State. Under Commerce licenses, exporters are obliged
to comply with the terms of the satellite technology safeguards
agreement between the U.S. and China, which requires them to:

— develop a technology transfer control plan which identifies the
level and extent of technical data to be released, and which also
includes plans for securing the satellite during its transportation to
the launch site;

— have all technical data under the license reviewed by the Defense
Department prior to its release to the launch service provider and
have a Defense Department monitor present at technical meetings and
launch activities with the Chinese launch service provider;

— transport the satellite in a sealed container allowing no access to
equipment or technical data and with U.S. monitors to accompany the
satellite if it is transported on a non-U.S. aircraft;

— have a separate cryptographic equipment safeguard plan for
communications security equipment;

— limit technology which can be released under the Commerce license
to only form, fit and function data used to mate the satellite to the
rocket and require the exporter, in the event of a launch failure, to
obtain a license from State before releasing any new technical data.

In light of these safeguards, I believe the existing Commerce
licensing system fully protects our national security and foreign
policy concerns. There have been no allegations regarding export
control violations of Commerce satellite licenses since the transfer
of jurisdiction.

There have been questions raised about an analysis conducted of the
1995 APSTAR II launch failure. After that failure, the company
involved conducted an analysis in order to satisfy insurance
requirements. The analysis was reviewed by the Department of Commerce,
which determined that it contained only information already authorized
for export under the original Commerce license issued in February
1994. The unclassified report was provided first to a consortium of
Western insurance companies and later to the Chinese launch service
provider. A 1998 review of the report, conducted at my request,
confirmed the original conclusion that the analysis contained
information specific to the launch vehicle or the satellite and that
its release to the insurance companies and the Chinese was appropriate
and without risk to national security. The review also determined that
it would have been more appropriate to refer the failure report to the
State Department prior to providing Hughes with any approval. Commerce
has subsequently provided both State and Defense with copies of the

I would also like to correct some misunderstandings which have arisen
regarding the Commerce licensing process as a result of an earlier
review by the General Accounting Office. GAO asserted that there are
five differences in the treatment of satellite licenses at Commerce
and at State. A closer look shows these differences do not affect
national security. GAO reported that:

— Congressional notification of individual licenses is not required
in the Commerce system. Commerce regularly briefs the Hill, issues
annual reports, provides licensing documentation and answers inquiries
upon request. We have provided briefings on satellite exports, and we
briefed on the transfer of jurisdiction in 1996. We are not aware that
the Congress has ever objected to any satellite export, and the
message that Congress has consistently sent is that it wants
satellites controlled as dual-use items under the Export
Administration Act, which does not generally provide for Congressional
review of individual licenses. In the specific case of satellites, of
course, there can be no exports to China without a Tiananmen Square
waiver which is notified to the Congress.

— Sanctions for missile proliferation do not apply to Commerce
licenses. Sanctions do apply to Commerce in cases of Category I
violations, and the President generally has flexibility to include
dual use export sanctions in other cases. Normally, however, Category
II missile sanctions apply only to munitions and dual-use items
controlled under the Missile Technology Control Regime. Commercial
communications satellites fall into neither category. Congress clearly
intended Category II sanctions to be less onerous than Category I
sanctions, which do cover dual use items.

— Defense’s power to influence the decision making process has
diminished. DOD’s authority has not diminished in this regard.
Commerce has denied licenses when Defense has raised national security
concerns found credible by the reviewing agencies, but Executive Order
12981 does not give Defense or any other agency a veto over licensing,
which would be contrary to legislative authorities and Congressional
intent. It does, however, permit an agency, including DOD, to prevent
approval of any license until the President has heard and decided on
its objections.

— Technical information may not be as clearly controlled under
Commerce procedures. Since Commerce technology conditions are almost
identical to those used at State, it is hard to see how the level of
control on technology has changed.

— The additional controls placed on communications satellites
transferred in 1996 do not apply to those transferred in the Bush
Administration. In practice, all satellite applications subject to
Commerce license after the transfer are subject to the same
safeguards, and the other agencies have the same review and escalation

As a matter of policy there are several reasons why allowing Chinese
launches of U.S.-manufactured satellites is in our interest. First,
this is a large and important industry. U.S. industry revenues last
year were $23.1 billion, a 15% increase from the previous year.
Employment in 1997 was over 100,000, a 10% increase from the previous
year. The industry indicates that it currently has $1.7 billion in
launch contracts on Chinese rockets, with 8,000 U.S. aerospace jobs
directly supported by those contracts. With over 1200 satellites
expected to be launched over the next ten years, it is clear that the
U.S. industry will continue to need access to all launch providers if
it is to remain the world’s leader. And that is a status I think we
all support, because it is not only good for our economy, it is good
for our military and our national security as well. As the line
between military and civilian technology becomes increasingly blurred,
a second class commercial satellite industry means a second class
military satellite industry as well — the same companies make both
products, and they depend on exports for their health and for the
revenues that allow them to develop the next generation of products.

Second, some of these satellites bring telephone, television, and
Internet services to the Chinese people. I believe such services are
an integral part of any effort to bring democracy and freedom to
China. History has shown that it was the successful example of the
West — not only in military strength but in standard of living and
freedom of expression — that brought the Cold War to an end. Our goal
should be to bring not only our products but our ideas and values to
China, but we cannot do that if they do not have the technological
tools to receive them.

International security since the end of the Cold War poses very real
problems for the United States. We are in the midst of a serious
debate as to whether we should seek to constructively engage those
with whom we have disputes or whether we should try to change their
behavior through unilateral demands, embargoes and sanctions. The
Administration’s experience has been that the latter course rarely
works, even though it may make us feel good to impose Cold War-style
embargoes on these countries. Those who find it in their interest to
exaggerate the threat of trade with China seem incapable of defining
our relations with this emerging power in any terms but those of
military conflict. However, we believe that treating China as a
committed adversary is the quickest way to ensure it becomes one, and
we remain convinced that it is better to engage China frankly in
dialogue, in trade, and in ideas than it is to seek to isolate them.